Personal Finance Lessons From PIIGS

Personal Finance: Lessons From PIIGS

Tighten up your monthly budget

Why did these countries borrow beyond their means? Because they were spending beyond their means. They have big centralized governments that offer generous salaries and benefits to their employees. They also provide free health care and retirement benefits to all of their citizens. When Greece recently faced the prospect of drastically reducing these benefits, the people weren’t happy, and took to rioting in the streets.

Don’t wait until a catastrophe forces you to make drastic cuts. Rioting in the streets won’t do you any good. Start looking at your budget now for ways to save money. Specifically, try to find savings on:

Your phone bill: If you’re past the point where canceling your cell phone/wireless contract will incur a penalty, start shopping around. And do you really need a landline in your home? Some people use their cells so much that they can go ahead and do without their old-fashioned home phone.

Your internet/cable: You’re probably paying for 150 or so channels that you don’t use. So think about your viewing habits and consider doing away with pay TV completely. Lots of shows and movies are available online for free at sites like Hulu.com.

Your insurance coverage: Maybe the gecko’s right. Maybe he can save you 15% or more on your auto insurance. Also, take a look at your health insurance through your employer. Many employers are offering high deductible health insurance plans with Health Savings Accounts, which is a great low-cost option for a healthy single person.

Communication is key

As bad as things are for the PIIGS, they probably won’t have to declare bankruptcy. They will be bailed out by the stronger countries in the EU; specifically, France and Germany. And it will be an expensive bailout. So why did those countries let this happen? One of the criteria for being in the Eurozone (the group of 16 countries that use the euro as their currency) was that they were all supposed to keep their debts at preset levels. Why didn’t they enforce the rules?

Well, for one, Greece hid their debt. With the help of American banks like Goldman Sachs and complicated debt instruments called currency swaps, nobody knew Greece was racking up huge debts. So, even though their fortunes are linked, the other countries couldn’t have done anything about Greece’s debt until it was too late.

This is a good lesson for those of us in relationships. If you’re engaged, married or living with someone, then chances are your financial fortunes are linked as well — you share. You share utilities, grocery bills and entertainment expenses. If one of you is racking up debt behind the other one’s back, then you’re going to be sharing that as well. And that’s a nasty surprise that can kill a relationship. So be honest about your financial life. If you’re a spender and not a saver, there’s nothing wrong with having someone help you develop better habits. And if you’re the saver and the other person is the spender, then speak up. It’s bad enough when someone gets into trouble over debt when it could have been prevented. However, when that debt threatens to take you down as well, you’re really not going to like it.

stay out of the piigs' sty

We’ll continue to keep an eye on the PIIGS crisis and hope that it doesn’t pull the rest of the world into a double-dip recession. However, we really can’t do anything about it. What you can control is your own financial life. The crisis could actually be a good thing for tourists as the euro is expected to weaken against the value of the U.S. dollar (although speculation that a resolution to the Irish crisis is close at hand has helped to minimize decreases in the value of the euro). A weakened euro would mean you could drink more wine in French cafes if you were to head over there. Just don’t put the entire tab on your American Express.